This paper examines the effect of trade reform on wages and unemployment in a two-sector, three-good economy in which labor is imperfectly mobile across sectors. Wages in the export sector are set so as to minimize turnover costs. The analysis shows that a reduction in tariffs, coupled with an...

This paper interprets contagion effects as an increase in the volatility of aggregate shocks impinging on the domestic economy. The implications of this approach are analyzed in a model with two types of credit market imperfections: domestic banks borrow at a premium on world capital markets,...

This paper analyzes the macroeconomic effects of fiscal and labor market policies in developing countries. The basic framework considers a small open economy with a large informal production sector and a heterogeneous work force. The labor market is segmented as a result of efficiency...

This paper examines the effect of skill-biased technological change on the structure of wages, the composition of employment and the level of unemployment in a two-sector economy with a heterogenous work force. Efficiency wage considerations and minimum wage legislation lead to labor market...

This paper develops a model of devaluation crises for an economy where foreign exchange restrictions lead to the emergence of a parallel market. The devaluation rule relates the size of the parity change to the spread between the official and parallel exchange rates. The mechanism that triggers...

This paper examines the short- and long-run effects of exchange market reform in developing countries. The first part reviews the recent experience of Guyana, India, Jamaica, Kenya, Sierra Leone, and Sri Lanka with exchange market reform. The second part studies analytically the short-run...

This paper examines credibility and reputational factors in explaining the December 1994 crisis of the Mexican peso. After reviewing events leading to the crisis, a model emphasizing the inflation-competitiveness trade-off is presented to explain the formation of devaluation expectations....

This paper examines whether price controls may enhance the credibility of a disinflation program, using a framework in which agents behave strategically. The analysis indicates that a partial price freeze is not fully credible, and may result in inflation inertia. The authorities may be able to...

The paper analyzes the role of labor market segmentation and relative wage rigidity in the transmission process of macroeconomic shocks in a two-sector optimizing model of a small open economy. The analysis is first conducted in the context of perfect intersectoral labor mobility. The discussion...

The paper examines the short- and long-term effects of price liberalization in a reforming socialist economy. The analysis is based on an optimizing framework that highlights hoarding behavior and the existence of parallel goods markets. The behavior of official and parallel market prices, stock...